JA Solar, Micron improve in active trade; Medtronic, Transocean steady; GT Solar on tap

By Rebecca Melvin

New York, Sept. 9 - On another light trading day in the convertible bond market Thursday - with trading ranks thinned by the Rosh Hashana holiday - JA Solar Holdings Co. Ltd. was an actively traded name, holding up well even though shares eased from their jump Wednesday.

Micron Technology Inc. also traded higher with shares, which have slipped significantly in recent months, but which gained 3% on Thursday, along with a mostly up day in technology equities.

In the health care sector, Medtronic Inc. - always a solidly traded name in the convert space with large, liquid issues - has been trading even more actively since Aug. 24 when the medical device maker issued an earnings warning; and Thursday was no exception.

"It's been climbing, but volatile," a Connecticut-based sellside analyst said of Medtronic.

Transocean Ltd. was a top trader Thursday, which is typically the case, but with pricing pretty much steady and not overly influenced by moves in its underlying stock.

"It's pretty much a 0% delta name, so it's not moving with the stock," a New York-based sellside analyst said.

Transocean shares have moved from about $94 prior to the April rig explosion to a low of $43 in July and back up to about $55 currently, a sellsider said.

Primary market lags

In the primary market, the GT Solar International Inc. mandatories, which are backed by investment-grade rated UBS AG, were on tap for pricing after the market close. But the smallish $130 million deal was not heard in the gray market, a New York-based trader said.

Over the past few days, the convertible secondary market "has been doing pretty well," a New York-based sellsider said, noting that this has been the case especially on equity down days.

"We're lagging on the primary side, but in the market in general it feels like valuation is not easing, that's for sure," the sellsider said.

The trading trend appears to be barbell shaped, with low-delta names in focus on the one end of the barbell and yield names in focus on the other side. In the middle, the more balanced names with pricing in the 95 to 110 range seem to be attracting less attention, the sellsider said.

Thursday's trading volume was thin, with one sellsider noting that it was not just because of the Jewish New Year holiday that volumes were light, but also because of the long Labor Day weekend and the halting start to the school year.

"You're coming into a four-day week to begin with, and the kids are off from school [today], so people are just taking vacation. The kids haven't gotten into the groove; trading hasn't gotten into the groove; summer hasn't really ended," the sellsider said.

In economic news, initial jobless claims for the week dropped 27,000 to 451,000, which was better than the 475,000 claims that analysts were expecting. The numbers trending better toward the 450,000 mark encouraged equities, which ended higher, although they pared early gains.

JA Solar adds 0.5 point

JA Solar's 4.5% convertibles due 2013 traded up to 93.75 bid, 94.75 offered on Thursday, compared to about 93 bid, 93.75 offered on Wednesday.

"The stock was up 10%, and the bonds did well yesterday. The stock eased today, but there was volume on the bonds and they did well," a New York-based sellside analyst said.

The bonds are up by about 0.5 point, which is "a pretty nice performance," the sellsider said.

The JA Solar 4.5% convertibles are a yield play, and in the Chinese solar space the company has a credit profile with which investors are most comfortable since it's the least levered of the group.

"All the other guys have more of a tendency of expanding their capacities, and borrowing to expand," the sellsider said, referring to comparables like Suntech Power Holdings Co. Ltd.

The delta on the JA Solar 4.5% convertibles is pretty low, at nearly 0%, the sellsider said. But it is still a hedge fund name that is played mostly outright.

The company announced increasing cell shipments for the next year, and the bullish comments lifted its shares to a new 52-week high on Wednesday.

Its sales of photovoltaic solar equipment have risen this year amid a rush to finish projects ahead of declining subsidies in Europe.

Last month, JA Solar raised its 2010 sales forecast and said it would boost its cell manufacturing capacity to 1.8 gigawatts by the end of the 2010 from the previous target of 1.5 GW.

Micron adds outright

Micron's 1.875% convertibles due 2014 moved up about 0.75 point outright on Thursday to 88.1875, up from 87.375 on Wednesday.

Shares of the Boise, Idaho-based memory chip maker added 20 cents, or 3%, to $6.80. But that's still down considerably from prices in the $8 range and as high as $10 as recently as June.

"The stock put back a lot on concerns about correction in dram inventory and negative comments on dram pricing by Samsung executives, but the convert is less impacted by that," a sellsider said, explaining that the convertible is more of a credit play than an equity play given the delta.

Although Micron is a cyclical company that could burn through a lot of cash, it is generating sufficient cash and not spending too much on capital expenditures, and therefore investors are not too worried about the credit, the sellsider said.

"The credit profile is relatively safe, and the 1.875% convertibles are not too far from maturity," the sellsider said.

"At this point, people like below par convertibles to play the yield," he said.

Medtronic 1.5% notes in trade

Medtronic's 1.5% convertibles due 2011, the most short-dated of Medtronic's notes, and the most actively traded on Thursday, traded at 100.25 during the session, which was up about 0.5 point on the day.

The Medtronic 1.625% convertibles due 2013 traded last at 99.625, which was down on the day, according to Trace data.

About three weeks ago, the bellwether medical devices maker lowered its sales and earnings guidance for its 2011 fiscal year ending in April and also downgraded its growth assumptions for the markets in which it competes.

Sales have declined as a shaky global health-care environment slowed markets and triggered increased pressure on product prices for the company's biggest medical-device businesses.

This pressure ramped up recently, taking a surprising toll on sales of heart rhythm devices like defibrillators and products used in spinal surgery.

Looking ahead, Medtronic said it now anticipates sales will grow by 2% to 5% in the current fiscal year, excluding the impact of currency rates, down from its prior 5% to 8% forecast range. It lowered its full-year earnings forecast to $3.40 to $3.48 a share, down from a prior $3.45 to $3.55-a-share forecast.

Chief financial officer Gary Ellis indicated on the earnings conference call that the company expects fiscal second-quarter sales growth in the lower end of the range forecast for the full year, with better growth expected in following quarters.

On Aug. 24, shares dropped 11% to $31.29. On Thursday, shares ended up 28 cents, or nearly a percentage point, at $32.71.

Mentioned in this article:

GT Solar International Inc. Nasdaq: SOLR

JA Solar Holdings Co. Ltd. Nasdaq: JASO

Medtronic Inc. NYSE: MDT

Micron Technology Inc. NYSE: MU

Transocean Ltd. NYSE: RIG

USB AG NYSE: UBS

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